Bankruptcy and Security Clearance Revocation

Many people who work at Dobbins A.R.B., Moody A.F.B., Kings Bay N.S.B., or a company that supports these installations, put off necessary bankruptcy filings because they fear that such a move will result in the security clearance revocation. While financial problems may have an adverse effect, there is not a direct relationship between consumer bankruptcy and security clearance revocation.

It is illegal to take any action against a person simply because of a bankruptcy filing, and such action incudes sanctions from a public or private-sector employer. However, in most cases, it is not illegal to take adverse action against on a person based on negative financial information, as long as this data is rationally related to the sanction. And in the case of a security clearance, there is a relationship between the two.

General Concerns

DoD Directive 5220.6 is the rule which controls obtaining, and keeping, security clearances. It lists a number of areas which could be a basis for adverse action. Essentially, the DoD wants to know if there is any reasonable possibility that the person with a security clearance could possibly hand over secrets to unscrupulous or unfriendly people.

To that end, the top area of concern is allegiance to the United States. Specific concerns include not only participation in acts of “sabotage, espionage, treason, terrorism, [or] sedition,” but also belonging to groups that actively promote such activity or sympathize with its objectives. The next two, foreign influence and foreign preference, are somewhat similar.

“Financial Considerations” are not addressed until the end of the document, in Guideline F. So, although the DoD considers financial problems to be an area of concern, having a brother-in-law that works at the Russian Consulate or being on the wrong kind of mailing list causes more raised eyebrows than a few late credit card payments.

Specific Concerns

The concern with debt problems expressed in Guideline F is that “An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.” That concern is a bit far-fetched, which probably explains why it is so far down on the list, but it does have some validity.

Like the other sections, Guideline F then lists several “disqualifying conditions,” and a few of them, though not many, are relevant to consumer bankruptcy. They are:

A History of Unmet Obligations: This concern is sometimes relevant, as some filers have a number of delinquent accounts. However, others only have one or two big ones, like a large medical bill or a significant mortgage delinquency.

Intentional Breaches: Very few debtors have a history of “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, [or] filing deceptive loan statements,” so this concern is largely irrelevant. There is the rare fraudulent filer, but the vast majority of debtors are good people who simply got in over their heads, for one reason or another.

Unwillingness or Inability to Satisfy Debts: The phrasing implies that the debtor intentionally refused to repay debts, at least in part, and this factor is absent from most consumer bankruptcy filings.

Financial Problems Linked to Immoral or Illegal Activity: There is nothing illegal or immoral about an injury-related hospital stay or a temporary loss of employment.

If the debtor is struggling with any of these issues, these struggles have absolutely no relationship with a bankruptcy filing.

Mitigating Circumstances

The DoD gives bankruptcy debtors a road map to use in the unlikely event that supervisors elect to take adverse action and a hearing is held. In the area of financial difficulties, the mitigating factors are:

Not Recent: In most cases, bankruptcy-related financial problems were fairly recent, because most filers are proactive when it comes to facing their monetary difficulties.

Isolated Incident: Many, if not most, bankruptcies begin with a single event, like a long hospital stay, which creates financial stress that spirals out of control, so this point is highly relevant in these situations.

Lack of Control: This is another highly relevant point, because very few people choose to borrow more money than they can comfortably repay. In fact, the examples that the DoD gives (“loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation”) are consistently among the top reasons given for filing bankruptcy.

Counseling: All bankruptcy debtors go through one round of counseling prior to filing and another one prior to discharge, and most debtors have sought counseling prior to then in an often desperate attempt to get their finances under control.

Resolution: Like all other employers, the DoD dislikes people who try and hide from their problems. The mere fact that a debtor filed a voluntary petition is a “clear indication that the problem is being resolved or is under control,” because this move means that debtors are taking responsibility for their financial condition.

Good Faith Effort: The DoD requires effort and not a successful payoff, because the mitigating factor is a good faith effort to “otherwise resolve debts,” which is not necessarily the same thing as paying them off.

The bottom line is that, as far as the DoD is concerned, financial problems are in the same league as personal conduct and alcohol consumption. Just like a few extra beers on the weekend or a minor domestic altercation will not lead to security clearance revocation, a voluntary bankruptcy petition does not lead to clearance revocation. If anything, filing bankruptcy alleviates the concerns listed in Guideline F, because of the items listed in the mitigating circumstances section.

Don’t let unsubstantiated fears of negative consequences keep you from doing what’s best for your family. For prompt assistance with a bankruptcy matter, contact an experienced bankruptcy lawyer in Rome for a free consultation. At the Law Office of Jeff Kelly, we have six locations in the area.

Breathe Easier! Take the First Steps with us! Let us guide you through understanding bankruptcy! This is the perfect time to free yourself from the debts that have been holding you back. It is time to regain your control over your finances. Our bankruptcy attorney can help get you back on your feet.